interim three months 2020 strategy - inditex.com

Interim Three Months 2020 1

Interim

Three

Months

2020

&

Strategy

update

10 June 2020

Interim Three Months 2020

Disclaimer

This document and the information herein does not constitute an offer to sell, to buy or to exchange, nor an invitation to make an offer to buy, to sell or to

exchange, nor a recommendation or advice, regarding any security issued by the Inditex Group.

This document contains forward-looking statements. All statements other than statements of historical fact included herein, including, without limitation,

those regarding our financial position, business strategy, management plans and objectives for future operations are forward-looking statements. Any such

forward-looking statements are subject to risk and uncertainty and thus could differ materially from actual results.

Some of these risks include, amongst others, ongoing competitive pressure in the sector, consumer tastes and spending trends, economic, political,

regulatory and trade conditions in the markets where the Inditex Group is present or in the countries where the Group’s products are manufactured or

distributed.

The risks and uncertainties that could affect the forward-looking statements are difficult to predict. The company assumes no obligation to publicly revise or

update its forward-looking statements in the case of unexpected changes, events or circumstances that could affect them. Given the uncertainties of

forward-looking statements, we caution readers not to place undue reliance on these statements.

For a discussion of these and other factors that may affect forward looking statements and the Inditex Group’s business, financial conditions and results of

operations, see the documents and information communicated by the company to the Comisión Nacional del Mercado de Valores (the Spanish Securities

Commission).

The contents of this disclaimer should be taken into account by all persons or entities.

2


Overview

1Q2020


Covid-19 pandemic

4

We express our solidarity with the people affected

Our number one priority is the health and safety of local communities, customers

and employees

We want to express enormous gratitude to our dedicated teams who have been an

inspiration during this period


Overview 1Q2020

Remain fully confident in our business model

Collections for Spring/Summer 2020 very well received by customers

Covid-19 has had a material impact on operations

965 stores in 27 markets remained open at the end of 1Q2020

Online business has grown very strongly in all markets

Supply chain continued to operate normally due to the flexibility of business model.Flexibility of supply chain has proven to be pivotal during this period.

Progressive recovery in markets with reopened stores

5


1Q2020: Stores with sales

6


Online sales +50% in 1Q2020

Very strong progression of online sales

globally

Strong advantage of single inventory

position

Online sales +95% in April

7


FY2020 to date

Progressive recovery in all markets as stores reopen

Store & Online sales in local currencies decreased 51% in May as stores start to

reopen but still with restrictions.

Store & Online sales in local currency from 2 June to 8 June decreased 34%. In

the markets that were fully open (54% of total stores) sales decreased 16%.

As of 8 June 5,743 stores were open in 79 markets

Expect to reopen most key markets by end of June

Remain fully confident in our business model

8


Financial

Summary



10

Material impact of Covid-19 pandemic in

1Q2020 operations

Very active management of supply chain

Strong adjustment to operating expenses

Completion of store optimisation includes

€308m in Depreciation

€ million 1Q20 1Q19

Net sales 3,303 5,927

Gross profit 1,930 3,524

PBT* (539) 952

Net income* (409) 734

*PBT (231m) and Net income (175m), excluding the provision for the completion of the store optimisation programme


Sales

11


Net sales 3,303 5,927

Sales performance marked by timing

of temporary store closures

Online sales growth of +50% in

1Q2020. April online sales +95%

2Q2020 sales trends improve as

stores reopened but some restrictions

still remain


Gross margin

12

Flexibility of supply chain key to gross

margin performance

Closing inventory down 10%

Spring/Summer inventory provision


Gross margin 58.4% 59.5%


Operating efficiencies

13

€ million 1Q20 1Q19 20/19

Op. expenses 1,448 1,842 (21%)

Implementation of initiatives to adjust

operating expenses in 1Q2020

All main components of operating

expenses have shown a good

performance


Depreciation

14

€ million 1Q20 1Q19 20/19

Depreciation (992) (696) 43%

Depreciation & Amortisation includes

completion of space optimisation

2020-2021


Financial results

15

€ million 1Q20 1Q19 20/19

Financial results (35) (36) (5%)

Interest on lease liability amounted to

€33m


Flexibility of business model key to performance

16

€ million 1Q20 1Q19 20/19

Inventory 2,629 2,923 (10%)

Receivables 644 846 (24%)

Payables (3,877) (6,306) (39%)

Op. working capital (604) (2,536) --

Net Cash Position 5,752 6,660 (14%)

Flexibility of supply chain

High quality inventory at 1Q2020 end

Strong financial condition


Outlook

&

Strategy

Update


2012

Store optimisation plan*Larger more prominent stores

*Enlargements/Absorptions

*All key global flagships/New Images

Global Online

RFID launch

Upgrade HQs/Logistics

Increased organic growth

Lower capital intensity

Strategic initiatives

18

2019

Global Online

€3.9 bn 14% of sales

Zara online globally

RFID complete in Zara

Massimo Dutti and Uterqüe

Zara one global integrated stock



2020-2022

Strong growth opportunity

Global online

Global RFID

Global stock integration


Increased organic growth


Global fully integrated Store & Online


Strategy update: Inditex 2022

19

Further strengthen our competitive advantage: Integrated Store&Online reinforce one

another

Stronger customer experience: Improved management of stores, inventory, supply

chain, sales conversion

Strong growth of online sales and reinforcement of digital capabilities

Focus on high quality stores: all integrated, digital, eco-efficient

Sustainability a key part of the strategy

Higher returns. Lower capital intensity



20

Stores are critical to the implementation of the following three key strategic areas:

digitalisation, integration between stores and online, and sustainability

Stores will also play a stronger role in the development of online sales due to their

digitalisation and capacity to reach customers from the best locations worldwide

It is for this reason that we must focus on those high quality stores that are best able

to deliver on these long-term strategic goals



Increased differentiation of fully integrated business model

Unique Store&Online platform to provide the strongest customer experience

Online sales above 25% of total by end of 2022

Underlying LFL of 4-6% annually

Gross space growth c2.5% annually

Capital expenditure c€900m annually

Increased profitability. Lower capital intensity

21


Global online developments

2007

Zara Home

launch all over

Europe

2011-2014

Zara launch in USA,

China, Japan, Russian F.

All concepts in Europe

All key markets covered

2020

New online

Studios for

Zara

64,000 m2

2010

Zara launch

all over

Europe

2019

Global presence

14% of group

sales

22

2022e

Online >25%

of group sales


Online launch in Peru, Uruguay, Paraguay and Argentina

23

East Nanjing Road


Global online to reach above 25% of total sales by 2022

24

Online sales as a % of total is expected to continue rising over the long-term

Digital capex €1 billion for 2020-2022

Leverages on fully integrated and digital store network

Inditex Open Platform

Online sales to reach above 25% of total by year end 2022


High quality stores: Key to competitive differentiation



Stores in best locations worldwide

Fully-integrated, digital, eco-efficient

Unparalleled customer experience

New stores 3.5 years average age

Large number of refurbishments and

enlargements

+6.5% LFL in FY2019

Store optimisation 2012-19

Gross openings 3,671

Refurbishments 2,556

Enlargements 1,106

Absorptions (1,729)



27

Stores at the end of their life cycle

Small units, mainly in younger concepts,

geographically diversified

Stores with low net book value

Potential to recover sales in neighbouring

stores and online

Profit from absorbed stores expected to be

fully compensated

Absorptions

Stores 1,000-1,200

2020/2021 500-600 annually

Net book value* €308 m

Store Average < €260,000

*booked in 1Q2020


Space growth in prime locations 2020-2022

28

Larger, more prominent and in best locations

worldwide

Digital, integrated, eco-efficient stores

Higher competitive differentiation

Increased profitability, lower capital intensity

Store openings c150/year

Enlargement of high quality stores

Gross Space c2.5%/year


Barcelona Paseo de Gracia

Highly prominent and differentiated stores



30

Edinburgh St James


Vittorio Emanuele, MilanRiyad



Vittorio Emanuele, MilanBogotá Calle 82



Vittorio Emanuele, MilanBeijing Wangfujing



Sustainability & Circular economy a key part of the strategy

34

Sustainability in supply chain

Renewable energy

Sustainable fabrics

Eco-efficient stores

Zero-waste / recycling


Unique business model: Global fully integrated Store & Online

35


Dividend

Inditex’s Board of Directors will propose to the Annual General Meeting an ordinary

dividend for FY2019 of 35 cents per share to be paid on 2 November 2020

Inditex’s Dividend Policy of 60% ordinary payout and bonus dividends remains inplace

The remainder of the bonus dividend for calendar 2020 and 2021 (78 cents pershare) will be paid in calendar 2021 and 2022

36


Interim

Three

Months

2020

10 June 2020

interim three months 2020 strategy - inditex.com

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